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Values sustain business success
Energy and direction are the primary attributes of personality. Energy comes from willpower and effort. Direction comes from ideas. Ideas inspire. They possess the power to release energy and channel it in a creative direction. There are several types of ideas that give direction to a company and constitute the core of its personality, its psychic center. These ideas include the beliefs, values, mission, goals, objectives, and attitudes that influence its thoughts, guide its decisions, mold its policies, and determine the course of its actions. The psychic center consists of those ideas that actually influence corporate behavior. There is a tale from the Arabian Nights entitled "Barmecide’s Feast," about a prince who decided to amuse himself by inviting a beggar to an imaginary feast of words. The beggar was led into a grand dining hall laden with ornately decorated covered dishes. The prince went around the table describing each dish in mouth-watering terms one by one before uncovering the empty plates. The beggar eventually caught on to the prank and pretended to eat and drink from the empty dishes. Feigning drunkenness, he then got up, stumbled across the room, and punched his host in the face. It has become fashionable these days for some companies to publicize idealistic statements of corporate philosophy, which are essentially feasts of words. This has evoked a natural and justifiable response of skepticism and cynicism from many people who are reluctant to assume that a company’s pronouncements necessarily reflect its intentions. The relationship between words and deeds is the crux of the issue. To what extent do a company’s stated beliefs actually determine the way it acts? An Extraordinary Act When a man died of gunshot wounds, the coroner’s investigation found that it was a case of suicide. The man had taken out a Northwestern Mutual life insurance policy, which did not provide coverage in the event of suicidal death. But Northwestern Mutual was not quite satisfied by the coroner’s report and decided to launch an investigation of its own. The company concluded that there was a reasonable doubt about whether it was a case of suicide and paid the full value of the policy to the deceased man’s family. Why on earth would a company act contrary to its own financial interests when law had freed it of any possible liability? Such acts, numbering in the hundreds, maybe thousands, are characteristic of Northwestern Mutual’s personality. They are expressions of the company’s mission, which is stated in a corporate credo dating back to 1888: "The ambition of the Northwestern has been less to be large than to be safe; its aim is to rank first in benefits to policyholders rather than first in size." In practice, this means that the company is highly selective in underwriting new policies but extremely liberal in awarding benefits even under doubtful circumstances. A century-old credo, a simple idea, charts the company’s course of action. But there are still questions that remain unanswered: Why? Who? and How? Why does a company adopt idealistic values and then seek to follow them? Who determines a company’s guiding values? How are the values actually translated into action? Testing Values in a Crisis There is an old proverb that says, "Thought is the soul of act." Ideas determine decisions; decisions dictate actions. There are virtually hundreds of ideas that influence the behavior of a corporation. The impact of ideas depends on their inherent validity, the extent to which management is committed to them, and the level at which they are implemented. A real test of an individual’s or a company’s commitment to an idea is the way it behaves during a crisis. Such a crisis descended on Johnson & Johnson in the fall of 1982 when seven people died in Chicago of cyanide poisoning after consuming extra-strength Tylenol capsules. A company whose products had become a byword for quality, gentleness, and the finest in health care for nearly a century was suddenly associated in the minds of millions with the very antithesis of the values it had tried to embody. At stake was a $400 million a year product and the reputation of one of America’s most respected companies. Tylenol began its rise to fame around 1975, when Johnson & Johnson’s McNeil Consumer Division began aggressively marketing the product as an alternative to aspirin. In what Fortune termed "one of the headiest success stories in the last decade,"Thomas Moore, "The Fight to Save Tylenol," Fortune (November 29, 1982), p. 45. Tylenol had captured 35 percent of the $1.2 billion market for analgesic drugs by 1982, contributing 7 percent to Johnson & Johnson’s worldwide sales and 15 percent to 20 percent to its profits. When news of the poisonings broke out, Johnson & Johnson was faced with innumerable decisions that had to be made by management on the spur of the moment under the glare of nationwide media coverage. From the beginning of the crisis, the company opened its doors to the media in recognition of its responsibility to keep the public fully informed of the events. The major issue concerned 31 million bottles of extra-strength Tylenol capsules that were on drugstore shelves around the country. It soon became evident that the cyanide had been introduced into the capsules only after they had reached the stores and that the problem was localized in the Chicago area. Nevertheless, news of the poisonings had reached the entire country, and a wave of fear hit drug consumers everywhere. Tylenol sales plummeted to 20 percent of their previous level, and opinion polls revealed that 61 percent of Tylenol users would probably never buy the product again. Madison Avenue marketing experts predicted that the product would never recover. The FBI and the Food and Drug Administration counseled Johnson & Johnson not to take any precipitous action. Despite that advice, Johnson & Johnson decided to immediately recall the 31 million bottles of Tylenol at a cost of $100 million. The company’s second major decision was made a few weeks later—to relaunch the product in triple-sealed, tamperproof packages. Contrary to the consensus of the experts, within a year the product had regained 90 percent of its previous market share. Looking back on the events, Johnson & Johnson’s president, David R. Clare, remarked: "Crisis planning did not see us through this tragedy nearly as much as the sound business management philosophy that is embodied in our credo. It was the credo that prompted the decisions that enabled us to make the right early decisions that eventually led to the comeback phase."<''ref>Lawrence G. Foster, "The Johnson & Johnson Credo and the Tylenol Crisis," New Jersey Bell Journal, (Spring 1983), p. 2. © 1983 New Jersey Bell. Reprinted with permission from the New Jersey Bell Journal Chairman James E. Burke confirmed that ''"the guidance of the credo played the most important role" in the company’s decision making.James E. Burke, "Ad Council Speech" (delivered on November 16, 1983), p. 6. Johnson & Johnson’s credo, which was written by General Robert Wood Johnson 60 years ago, is based on two central beliefs. The general expressed the first of them in these words: Institutions, both public and private, exist because the people want them, believe in them, or at least are willing to tolerate them. The day has passed when business was a private matter—if it ever really was. In a business society, every act of business has social consequences and may arouse public interest. Every time business hires, builds, sells or buys, it is acting for the … people as well as for itself, and it must be prepared to accept full responsibility. Foster, "Johnson & Johnson Credo," p. 4. From this belief arose the text of the credo, which sums up the responsibility of the company to its customers, employees, the community, and its shareholders. It states that the company’s "first responsibility is to the doctors, nurses and patients, to mothers and all others who use our products and services." On the basis of this belief, the company felt the obligation to withdraw $100 million of product from the market—not only to eliminate even the slightest possibility of any further poisonings but also to alleviate the widespread anxiety arising from the events. It acted to protect the public’s safety and also to bolster the public’s emotional security. The second belief on which the credo was based is that paying attention to social responsibilities is beneficial to business. Burke said, "I have long harbored the belief that the most successful corporations in this country, the ones that have delivered outstanding results over a long period of time, were driven by a simple moral imperative—serving the public in the broadest possible sense better than their competition."Burke, "Ad Council Speech," p. 8. To the management of Johnson & Johnson, the unexpected recovery of Tylenol is a vindication of that belief. The company’s actions during the crisis won the confidence of the public. One poll taken three months after the tragedy showed that 93 percent of the people felt the firm had handled its responsibilities well. It also won accolades from the press. The Wall Street Journal wrote of it:’’ "Without being asked, it quickly withdrew extra-strength Tylenol from the market at a very considerable expense. The company chose to take a large loss rather than expose anyone to further risk."From "The Tylenol Trouble," The Wall Street Journal (October 18, 1982), editorial page. Cited in a special report published by Johnson & Johnson. Reprinted by permission of The Wall Street Journal, © Dow Jones & Company, Inc., 1984. All rights reserved. Winning the confidence of people is not merely a question of convincing their minds that you have done the right thing; you must convince their feelings, too. A clear understanding does not create as much confidence as a satisfied feeling. Johnson & Johnson succeeded in providing both. A Bitter Truth On the night of March 1, 1984, the lights were burning a little brighter than usual at the New York headquarters of The Wall Street Journal. A news story was about to break, and the editorial staff was carefully examining the facts as they came in, sifting substance from rumor, trying to arrive at the truth. The largest-selling newspaper in America until it was surpassed by USA Today a few years ago, published by one of the most admired companies in the country, a close observer of the business world, a relentless seeker after the secrets of corporate failure and success—perhaps the Journal has learned more from watching others than it reveals to its readers. Its appeal is not the alluring excitement of sensationalism and scandal but, rather, authoritative and factual reporting backed by integrity, reliability, and a commitment to the highest ethical standards of journalism. But on this particular occasion, the big story was a scandal, and the subject of investigation was the Journal itself. That day the Securities and Exchange Commission had notified the Journal that one of its reporters for the "Heard on the Street" column, R. Foster Winans, was under informal investigation for periodically leaking market-sensitive information to a stock trader that may have affected trading in the shares of 21 companies. At stake was the Journal’s most precious possession—its reputation for integrity and impartiality. It had to make a difficult choice—to chase after the story and reveal all of the facts or to hide behind the screen of legal precedents that provide journalists with a certain degree of immunity from public scrutiny. The Journal made its decision immediately. The next morning it came out with a feature article on market leaks, in which it disclosed the SEC investigation of Winans. A few weeks later, after the first round of investigations was over, it published a front-page article headlined "Stock Scandal" in which it revealed all available information on Winans and the investigation. Meanwhile, Winans had been fired. The extent of the Journal’s openness and cooperation with the SEC evoked both praise and anxiety from other newspapers. An editor of The Washington Post was quoted as saying, "The Journal has done a fine job of reporting the story."Statement by Benjamin C. Bradlee, Washington Post executive editor, quoted in The New York Times (April 7, 1984), p. 37. © 1984 by The New York Times Company. Reprinted by permission. A New York Times columnist suggested that the Journal may have actually been too open, when it provided even personal records and reporters’ notes to the SEC. "Does the Journal’s cooperation with the SEC investigation jeopardize First Amendment guarantees of a free press?"Quoted from a column by Alex S. Jones in The New York Times (April 6, 1984), p. 37. © 1984 by The New York Times Company. Reprinted by permission But the Journal remained adamant in its decision to reveal all the facts. Dow Jones Chairman Warren Phillips explained the idea behind the Journal’s actions:’’ "The only consideration in our coverage was what we owed our readers. We felt we had an obligation to give all the facts in precisely the same way we do when wrongdoing occurs at other institutions. … "Warren Phillips, "How It's Done at The Wall Street Journal," M (November 1984), p. 71.’’ These two incidents do not prove that companies always act in the public interest. But they do illustrate how a company’s central beliefs give direction to the decisions and actions of top management during a crisis. Such crises are, of course, rare. Of more practical importance is the impact of a company’s central ideas on its normal day-to-day functioning. An Honest Merchant One corporation that has become renowned for living up to its word is Sears. The most striking characteristics of Sears are its size and its plainness. With 798 retail stores and 2,389 catalog-sales centers, with 60 million Sears credit card holders representing half of all American families, with nearly 450,000 employees worldwide and almost $39 billion in annual sales, the company is gigantic and possessed of enormous reserves of vitality. Yet, in spite of its size, Sears is somehow very ordinary. The company is still grounded in the simple values and levelheaded common sense of Middle America’s rural heartland, and this is by far its greatest strength. As the corporate director of human resources, Mary Kay Kennedy, put it: "We are about as U.S.A. America as anybody can be." Sears’ personality is rooted in values like utility, reliability, consistency, and worth. Its patient, unpretentious, nonaggressive demeanor has often misled people, especially sophisticated northeasterners, into seriously underestimating its capabilities and intelligence. But Sears is not lacking in either, as its remarkable history amply demonstrates and its present diversification into financial services will undoubtedly confirm. One thing nobody doubts about Sears is its integrity. Just before the turn of the century, Julius Rosenwald introduced a policy at Sears that was highly instrumental in the growth of the fledgling mail-order business into the largest retailer in the world. That policy, which can be found printed in bold letters above the front door of every Sears store in the country, reads "Satisfaction Guaranteed or Your Money Back." There is nothing very high-sounding about this policy today, primarily because Sears popularized it so widely over the decades that most major department store chains have been forced to adopt something similar—at least in words, if not in practice. But in 1895 such an idea was far from common. When Rosenwald joined the company, he found that Richard Sears, the founder, had quite a penchant for poetic license in advertising his wares. At a time when the company was barely known outside of Chicago, Sears emblazoned the cover of his catalog with the modest claim: "Cheapest Supply House on Earth. Our Trade Reaches Around the World." The catalog included obesity powders to get rid of superfluous fat and a hair-restorer—hardly products any company would like to back by a guarantee. Rosenwald recognized that in order to win the confidence of conservative and skeptical farmers living in the rural areas, the catalog had to be factual. He curbed Sears’ literary impulses, introduced clear, factual descriptions of each product, and established the famed policy. The policy itself is based on two values—the value of trust and the value of reliability. It says, in effect, that Sears is a company you can trust because it sells reliable, quality merchandise. The idea of a trustworthy and reliable merchant is certainly appealing. But the power of the idea arises from the fact that it has been converted into a policy that is enforced. Once a man walked into the Sears store at Wayne, New Jersey, with an old beer carton containing some five-to ten-year-old Craftsman tools and asked the service counter representative to replace them because they were rusty. The service representative called over the store manager, Bill Collett, to speak with the customer. The man explained that he had just moved to another house and in the basement he found these tools, which had obviously been abandoned by the previous owner of the house. He saw that they were Sears’ Craftsman tools, which he knew carried a lifetime guarantee. Since they had rusted, he had come in to exchange them. Collett was a little stupefied by the customer’s request, but after ascertaining that the man was both serious and adamant, he exchanged the tools for new ones. Hatchets with smashed heads that are sold with clear instructions not to use them as hammers, broken screwdrivers that have been used as crowbars, shoes that are nearly worn out, even furniture purchased six months earlier—all are brought back to the Wayne store for adjustment. Collett says that in all these years he never refused an adjustment to a customer. Sears’ money-back guarantee is not just a policy enforced by the manager in extreme circumstances. It is communicated down the line from manager to the sales floor and to customer service as a guideline for everyone to follow. Mike Minetti, who had been working as a sales clerk at the Wayne store for only six months, could recall installing entire kitchens for customers exactly according to the specifications of a written contract and approved plan, then ripping them out and changing things around at no extra charge because the customer was not happy with the layout. "The bottom line with Sears is that if the customer is not happy—even when the conditions of purchase are explicit and clear—satisfy him."Employees carry out the Sears policy even when they know the customer is taking unfair advantage of the company. Since the policy is clearly written above the door, there is no alternative but to comply. Kim Newburg, a college student and part-time customer-service representative at the Wayne store, says: "The company wants us to make sure the customers are satisfied and they get whatever they need. … We take back almost anything, even if there is no receipt, even if it is the customer’s fault. We take back clothing, even if it is a year old." Many companies have liberal return policies, but few have converted the ideas of trust and reliability into a living tradition that is transmitted from management to part-time hourly workers and translated into practice on a daily basis in stores all over the country. According to an article in Time, much of the positive feeling toward Sears even today is a result of this policy.’’ "Sears will take almost anything back, for almost any reason" and "sometimes get taken itself in the process of taking back goods. … At a time when many companies cannot resist the temptation to take the money and run, Sears continues to show how to succeed in business by really trying.""Sears' Sizzling New Vitality," Time (August 20, 1984), p. 90.’’ Edward Brennan, Sears’ president, explained the significance of the policy this way: ''Most companies will be very quick to give the customer his money back on a $2 tie. If it’s a $20 shirt, most retailers will be fairly quick to give the money back. If it’s a $200 lawn mower, many companies will take care of that. If it is a $2,000 central air conditioner, then there are fewer that are going to be responsible. And if it is a $20,000 remodeling of a house, there are not very many at all. It is the principle of the thing. I’ve never seen the profit and loss account of a store significantly impacted in a negative way by a liberal adjustment policy. It also brings in more customers, no question about it. It is the spirit that has created that reputation for integrity. A Pragmatic Idealist Johnson & Johnson has a credo that guided the decisions of its top management during a crisis. Sears has a policy based on certain values, which it communicates to its employees and which serves as a guideline for their conduct in the day-to-day operation of the business. These are two different levels or expressions of value implementation. At Merck Sharp & Dohme, we found another. Values were not the first thing we thought of when we visited MSD’s facilities at West Point, Pennsylvania. There was a cool air of military discipline about the place as we struggled to pass through security and were rushed along to our first meeting. Merck has a strong, assertive personality, highly professional, hard-driving, very intelligent. It has a systematically organized character, undoubtedly a legacy from the company’s founder, George Merck, whose family had run a pharmacy and drug-manufacturing business in Germany for more than two centuries prior to his move to the United States in 1891. This first impression hardly prepared us for what we encountered during our meeting with John Lyons, a former president of MSD who has since been promoted to executive vice-president of Merck & Company, Inc. In fact, we were quite taken aback as Lyons waxed eloquent on the value of integrity. He believes that the company’s credibility with physicians is one of the most important factors in its success: The key to our productivity is our credibility. It can take years to build it, and it takes just an instant to destroy it. If the sales force asks what they should really be doing, I tell them: "You should just make believe that your mother is the next patient to be diagnosed by the physician. How would you like the physician to be informed about the product? You want to make sure the physician understands when not to use the product; or if they are going to use it, you want to make sure that the side effects, if any, are understood by the patient." Quite frankly, we did wonder for a while whether we were being treated to a Barmecide feast like the beggar. But all doubts were very soon dispelled. Lyons warned us not to take his word for it. What we discovered was that his obsession with credibility was only one expression of the company’s preoccupation with integrity. At MSD credibility is not just an idea or even a policy. It is a value that has been converted into a top-priority goal to be pursued at every moment in every department at every level of the company. Credibility at MSD starts with training. The professional representatives who meet physicians to present information on new drugs are inculcated from the first day of training with the doctrine of "fair balance." Fair balance means that the representative must present the strengths and the weaknesses of each product in an absolutely objective manner, with no exaggeration of positive claims about a drug and no understatement of its side effects. Eugene McCabe, vice-president of marketing, explained: "From the very beginning we explain to the representative that it is in his or her interest and our interest and the patient’s interest and the doctor’s interest that we be very, very much aboveboard, that we present things in a balanced way, and then we drill them on this." Credibility begins with training, but it does not end there. The representatives are also evaluated monthly on the fair balance of their presentations to physicians, and this is one of the criteria for determining their performance ratings. A study by Scott-Levin Associates found that MSD’s representatives scored highest among all major U.S. pharmaceuticals firms on the quality of their presentations to physicians. MSD also has a rigorous system for ensuring that all literature presented to the medical community passes the test of fair balance. Every single communication that is sent out of the company—including letters to physicians, sales bulletins to representatives, and prescribing information contained in the drug package—must first be cleared by one of the half-dozen medical-legal review boards, each consisting of a lawyer who reports to corporate headquarters and a physician who reports to the research division. Representatives are not even permitted to write out a note at the doctor’s office containing any product information. "That’s strictly forbidden," says McCabe, because "we must have trust among the medical profession that what we tell them is truthful and honest." Maintaining and enhancing credibility at Merck is not just the responsibility of the review boards or the training department. It starts with the CEO and includes just about everybody. Every manager at Merck is responsible for preserving the image and credibility of the company and for everything that is done by those who work under him or her. Managers have to be informed and alert regarding every detail. "Details are important in this business," says McCabe, "because it is in the little details that you can get in trouble. It is little facts, over-looking little things, which can hurt patients." In addition to the responsibility of managers, there is also an intense peer pressure from colleagues to maintain the company’s high standards. Merck does not have a high-sounding credo to draw inspiration from, but most people trace the origin of its insistence on integrity to the founder’s son, George W. Merck, who became president of the company in 1925. Merck once said, "We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been."Quoted from a talk by George W. Merck at the Medical College of Virginia at Richmond (December 5, 1950).’’ Those words were spoken in 1950. To what extent have they proved true since then? According to John Huck, chairman of Merck & Company, Inc., "every time." In the midsixties the firm started putting an extra emphasis on its obligation to the community and on fair balance. This coincided with a period of rapid growth that took the company to the top of its industry. As MSD’s president, Doug MacMaster, put it: "It made good sense to be ethical. To tell the full truth about your product makes you all the more believable. Our success in selling is really based on very good products and having tremendous credibility." The company’s integrity has earned it not only the confidence of the doctors but the loyalty of its own employees as well. As one executive commented: "It is very, very nice to work for a company in a marketing job where the underlying philosophy is to be as honest as you possibly can with the customer. That is a nice thing, because I think it is the right thing to do." Value implementation at Merck is based on a lofty idea, to which top management has very seriously committed itself. This idea has been translated into a formal program that includes a clear statement of policy, explicit standards for conduct, training, and a series of systems designed to control, monitor, and evaluate behavior to ensure that it is consistent with the value. Responsibility for value implementation goes right down the line and is reinforced by pressure from peers. Safety Pays The most powerful corporate values are not the ones that are preached and practiced by top management. They are the ones that penetrate through all the layers of the organization down to the bottom, where they are implicitly followed, often unconsciously. When Eleuthère du Pont immigrated to America from revolutionary France in 1790, he had to abandon the property and privileges of his aristocratic past. But he did carry with him two valuable assets—a technology and an idea. The technology was for making the best gunpowder in the New World. Du Pont established a gunpowder factory alongside the Brandywine River at Wilmington, the seed for what is today the most-admired chemical company in America. Du Pont’s formula for gun-powder is no longer valuable, since the company left that business long ago; but the idea he brought along with it is more valuable than ever before. His idea is summed up in the philosophy of E. I. du Pont de Nemours & Company, Inc.: "We will not produce any product unless it can be made, used, handled and disposed of safely."Safety and Occupational Health: A Commitment in Action, published by Du Pont, 1984, p. 4. That philosophy expresses a very lofty idea even by today’s standards. But it is absolutely incredible to think that it originated 220 years ago from a manufacturer of gunpowder, especially in the days when powder mills had the nasty habit of blowing to smithereens now and then. Du Pont started a safety tradition at his powder mill that has long outlived its founder or the mill and become a core value of the company. He designed his first powder mills to minimize the danger in the event of an explosion. He tested new gunpowder formulations himself before permitting other employees to handle them. He established a rule that no employee was allowed to enter a new mill until he or his general manager had first operated it safely. But more than all these precautions, he demonstrated his commitment to safety by living with his family on the plant site beside the mills along with his employees. More than two hundred years later Du Pont’s safety record is truly impressive. Its workdays-lost rate (related to accidents) in the United States is 69 times better than the average for all U.S. industry and 17 times better than the average for the U.S. chemicals industry. Even the worldwide rate for Du Pont’s 146 facilities is 67 times better than the U.S. average. In the wake of the Bhopal gas tragedy in India, where 2,500 people died and more than 100,000 were injured due to leakage of gas from a chemicals plant, Du Pont’s performance takes on far greater significance.A study confirms, Du Pont’s 157,000 employees have been involved in only 253 lost-workday injuries in a stipulated number of years. If the company had been typical of U.S. industry, it would have had more than 12,000 such injuries. How does Du Pont do it? It begins by converting the corporate value of safety into an explicit objective—zero accidents. This objective is based on the belief that all accidents are preventable. One Du Pont plant with 2,000 workers actually went for 445 days without a recordable injury. At Du Pont safety is a line management responsibility. All managers, from the chairman of the board to the supervisors who manage groups of workers in plants or offices around the world, are responsible for safety in their departments. If an injury occurs in any Du Pont plant, it is reported to world headquarters within 24 hours. If a death occurs, it is reported to the chairman. At Du Pont the CEO is also the chief safety officer, and at all executive committee meetings, safety is first on the agenda. The same importance is given to safety by plant managers. Every plant defines standards, sets goals, designs a safety program, and conducts regular safety audits. Training is a key element. The first thing taught in every training program is safety. Studies have shown that safety performance is proportionate to the level of training of the work-force, so training is continued as an ongoing activity. More impressive than all these things is the fact that all supervisors in Du Pont facilities must review one safety feature every single day with each of their subordinates. Every sales and administrative department also conducts regular safety meetings. An open file drawer in a Du Pont office is considered a safety hazard and attracts immediate attention. There is also a specific set of safety-related rules. Wearing seat belts in company vehicles while on company business is mandatory. Defensive-driving courses are given to employees who travel on the job by car. When one traveling employee in Florida was identified by his manager as a problem driver, an outside driving expert was flown down from Wilmington the next day to give him special instruction. Safety is the responsibility of every employee at Du Pont, not just managers. Rules are enforced by discipline, and violations are a serious matter. Leon C. Schaller, section manager in the employee relations department, says, "Anyone working for Du Pont knows the fastest and surest route to getting fired is to repeatedly violate safety rules and procedures."Leon C. Schaller, "Effective Management of Safety and Occupational Health," delivered at Cost Containment Seminar in Las Vegas (November 8–9, 1984). The company tries to positively involve workers in the safety program. Safety at Du Pont does not end at 5 P.M. There are off-the-job safety programs, too. According to the National Safety Council, in 1983 off-the-job accidents cost the nation $25 billion, of which $8.5 billion was borne by employers. Although it is still many times safer to work at Du Pont than to play off the job, the company has managed to reduce off-the-job accidents by 58 percent over many years. Through special programs at some locations, the percentage of Du Pont employees wearing seat belts during nonworking hours has been raised to 70 percent, compared with a 20 percent national average. In fact, as you drive out of a Du Pont parking lot, the guard could ask you to buckle up. Does Du Pont’s obsession with safety really justify the cost? According to John Page, director of safety and occupational health, "Safety is good business." The average cost of a disabling injury in the United States works out to about $17,000. On that basis, Du Pont would have spent an additional $48 million in a past year if its safety record were at the all-industry rate. The company’s workers’ compensation costs measured in dollars per employee are about one-tenth the all-industry level. That translateds into annual savings of about $30 million Safety pays in other ways, too. Page says: It is an outstanding human relations tool. What better way is there to show concern for people than to show concern for their safety and health? It pays in the protection of the skills that they have built up and in the elimination of suffering. It pays in the reduction of workers’ compensation and maintenance rates and in the loss of property. Show me a manager who cannot protect his people from hurting themselves, and I’ll show you a manager who is not a good manager in anything he does. Show me a manager who manages safety well, and I’ll show you a manager who manages quality well, production well, costs well, too. The technique that you learn in managing safety applies to any parameter. There is a tremendous payback, and the biggest payback is in the efficiency of management. We have said that corporate intensity is generated by perfect attention to small details. We asked Page what is the smallest detail that is considered important for safety at Du Pont. "A toothpick or paper clip on the floor is a safety hazard," he replied. At Du Pont value implementation has been taken another step further down the line. It includes conversion of the value into a policy and the policy into an objective for each facility, commitment and active responsibility by top management, establishment of standards and rules, ongoing training, systems for monitoring and enforcement, middle-and lower-level management responsibility, regular meetings, and involvement of all personnel on a daily basis. This is an excellent example of comprehensive value implementation. Not only is implementation done through formal systems and procedures but the value has become so fully institutionalized that it is a custom or culture of the company. As a value becomes more institutionalized, the formal structures for implementation fade out of use. An Idea Becomes an Attitude In December 1975 a 32-year-old stockbroker, a married man with children, failed to pay the quarterly premium on his $100,000 life insurance policy with Northwestern Mutual. In spite of repeated reminders from the company, the policy owner allowed his policy to lapse. Six months later the man’s wife phoned the Northwestern Mutual agent who had sold the policy to her husband and informed the agent that her husband had been hospitalized with a brain tumor. The doctors said he had only one or two years to live. She was informed by the agent that the policy had lapsed. The agent was quite upset and started dwelling on the case in his mind. He recalled a casual statement of the man’s wife that her husband had been making irrational business decisions for several months, perhaps because of the tumor. The agent referred the matter to the Northwestern Mutual head office, asking if anything could be done. The company agreed to reopen the case for investigation. Months went by, then one day the policy owner’s wife received a call from the agent. The company had decided that her husband had been disabled by his illness prior to the lapse of the policy and was entitled to a waiver of premiums from that time. The policy was reinstated at no cost. On hearing the news the woman replied, "Oh, my God!" Why does a company behave in this manner? The simplest answer is because its mission says it should, but that reply only begs the question. Why should a company have a mission that states, "The aim is to be first in benefits to policyholders rather than first in size"? Partly the mission reflects the fact that Northwestern is a mutual company, which means that its policyholders share in its earnings and elect its trustees. Serving the policy owners is equivalent to serving the shareholders. But this is also true of at least a dozen of the largest American life insurers founded after 1842, which differ significantly in the way they conduct their business. As John Gurda wrote in The Quiet Company: "Mutual companies … assume lives of their own. They vary widely in personality. … John Gurda, The Quiet Company: A Modern History of North-western Mutual Life (Milwaukee: Northwestern Mutual Life Insurance Company, 1983), Introduction, p. 1." Partly it is because the company was founded in Wisconsin and situated in Milwaukee, a city dominated by European immigrants, mostly of German extraction, and known for its ethic of hard work. Northwestern Mutual was the only one of the ten largest life insurance companies born west of Philadelphia. Gurda observed, "The roots of its character go deep into the substance of Milwaukee. … Both the company and the city are frugal, slow to change, somewhat complacent, somewhat parochial. Quality is more important to both than size."Ibid., p. 293., One other important factor in molding the company’s personality was the financial difficulty that beset it during its early years. The Wisconsin economy was primarily agricultural, whereas life insurance companies had hitherto prospered in industrial areas with surplus capital. When John C. Johnston, the founder, died in 1860, the company took four years to pay off his claim. Financial pressures made it essential for the company to minimize claims by issuing policies only to very good risks. While other companies were relaxing their standards for underwriting new policies, Northwestern Mutual was tightening its own. These were the dominant factors influencing the company at the time when Henry Palmer was elected president in 1874 and drafted the company’s credo. Palmer, who had been a judge prior to joining the company, was a conservative man even by Milwaukee standards. He established four basic principles that still govern Northwestern Mutual today—simple products, low expenses, high-risk standards, and cautious investments. "When Palmer arrived, Northwestern had a personality. When he left, it had a character, and that character has endured to the present." Ibid., p. 20. During Palmer’s term of office, which covered 3½ decades, the company’s agency field force developed a high reputation for professional skill and an intense loyalty to the company. Northwestern Mutual’s agents became noted for high ethical standards and an almost religious zeal for serving the customer, which prompted one president of Metropolitan Life Insurance Company to comment: "You can tell an Equitable agent by his checkered vest, a Prudential agent by his kit, and a Northwestern Mutual agent by his halo." Ibid., p. 17. When the life insurance industry was subjected to close scrutiny by a Senate committee during Teddy Roosevelt’s presidency, many of the large eastern companies were indicted for a variety of abuses ranging from bribery to illegal investments. About the worst accusation against Northwestern Mutual was that its management was self-perpetuating, which was certainly true during Palmer’s 35-year reign. All these factors help to explain the character and conduct of the company, but there is one more that stands out from the rest—the credo itself. Being better in order to be bigger may be considered a sensible idea by which to run a business, but being better instead of being bigger is not a business idea at all. It transcends business. It is an ethical ideal. Taken as a mission for corporate behavior, it is a goal that challenges management and every one of the employees in every activity they undertake in each and every minute of every day—in dealing with each other, in dealing with the company’s agents, and in dealing with the policy owners—to strive for qualitative excellence rather than quantitative gain. The acceptance of such a goal, however imperfectly it may be carried out in practice, imposes an ultimate discipline on the company that no system of authority can match. It demands a constant effort to think always of what is best for the customer and to act according to that knowledge. Two incidents illustrate the practical impact of this idea. During the late 1970s, rising interest and inflation rates and intense competition within the life insurance industry prompted most companies, including Northwestern Mutual, to offer significantly better protection to new policy owners than had been offered in the past. Alone among the major insurers, Northwestern Mutual felt obligated by its code of fairness to offer the same terms retroactively to all its existing policy owners through a massive, costly, and time-consuming program called Update ’80. In a period of sagging business for the industry, the program helped Northwestern Mutual achieve its best year on record and to reap a rich harvest of goodwill from its policy owners. As Gurda wrote, "Update ’80 made Northwestern a highly visible champion of mutuality and fairness." Ibid., p. 251 During 1983 the company conducted a similar amendment program that offered the owners of policies issued before January 1, 1982 an opportunity to receive higher dividends on the unborrowed cash values of their policies. This dividend feature is a part of all Northwestern Mutual’s permanent insurance policies issued after January 1, 1982. Another test of Northwestern Mutual’s operating principle arose when the prime rate touched 20 percent in 1980 and policy owners rushed to apply for loans on their policies at the stipulated 5 percent interest rate. The demand for policy loans, surrender payments, and commissions rose so high that the company’s cash outflow on loans and commissions virtually equaled the $800 million in premiums received during the year. Ibid., p. 253. In 1981 loans rose to more than 30 percent of assets. Many insurance companies employed a variety of techniques to delay the issuing of policy loans as long as possible. There is a clause in Northwestern Mutual’s policies that permits the firm to take up to six months to issue policy loans. However, in practice the company adopted a policy of processing loan applications on a top-priority basis within three days from receipt. It also allowed a practice by which a loan of up to $1,000 could be obtained without any delay directly from the company’s local agencies upon presentation of the policy. What type of person did Northwestern Mutual grow up to be? Our impression is of a company quiet and reliable—everyone spoke very softly, yet seemed unaware that they were doing so and denied it was according to any policy—consistent and conservative, yet very hard-working and surprisingly dynamic, honest and fair, friendly and cheerful, proud and responsible, accomplished yet ambitious, "with an almost religious devotion to excellence." There is a harmony at Northwestern Mutual between the company’s employees, its field agents, and its policy owners—the harmony of a close-knit family that believes that what it is doing is good. Like any real family, North-western Mutual’s family of policy owners is difficult to enter; but once you are inside, the commitment is total. The most impressive thing about Northwestern Mutual is the way it translates its highest ideals into daily practice. We have already looked at companies that implement values through a strictly enforced policy, rigorous training, carefully monitored systems, and detailed operating procedures. Northwestern Mutual has all of these things, and it uses them to express several of its core values like cost control, speed and skill of service, and cooperation between office and field staff. But when it comes to the company’s single most important value, which is the basis of its mission, the primary means for its implementation is none of these. Rather, it is expressed through the personal attitudes of the employees and the agents. Service at Northwestern Mutual is not—at least it is no longer—merely a policy or program established by top management and implemented through the company’s operating systems. It is an attitude that saturates the entire personality and atmosphere of the company and has become institutionalized as a self-perpetuating custom or culture of the organization. That attitude influences the way all employees in the company think about their work and act in executing it, without anyone else’s reminding them or instructing them to do it. It is not even the force of peer pressure that perpetuates it. It is a pressure from within each person, not from outside. Northwestern Mutual is the most mature example of value implementation that we have come across, a place where the value is actually internalized by the employees as a personal belief and commitment in their own lives. As Jere Whiteley, assistant regional director of agencies, put it: "I think the company would run without anyone sitting at the top, because everyone has their job, and I think it would run just as well." What is the overall impact of values on Northwestern Mutual? Consider these facts: *Northwestern Mutual pays more in total individual life insurance dividends to policyowners than any other company in the industry. *Northwestern Mutual consistently earns the highest possible financial strength ratings from the four major financial ratings services. *Customers give us the highest satisfaction score among U.S. life insurers, according to the American Customer Satisfaction Index survey. *Northwestern Mutual has a persistency rate of 96.4% for life insurance in-force, a key indicator of customer satisfaction. *In 2007, for the 24th time in as many years, Fortune® magazine recognized Northwestern Mutual as America's "Most Admired" company in our category. The Ever Present Challenge The three questions we raised in the beginning of this article are directly relevant to every company in every field of business, regardless of its age. First, why do companies adopt idealistic values? "The goals of a business give the people who work in it the direction they need to increase their vigor and their strength," wrote Kappel of AT&T. "Goals that excite people’s imagination, and rouse them to strive toward accomplishment presently out of reach, are a powerful energizing force." Kappel, Vitality in a Business Enterprise, pp. 37 and 71. When we speak of a goal, we usually mean a particular destination to be reached in a specific period of time—that is, an objective. But values like honesty, safety, service are also goals. They are permanent goals that can never be fully attained or maintained but serve as a standard of perfection to strive for at every moment in every activity. For this reason they appear more vague than specific objectives but are actually far more powerful. The constant effort of an organization to realize high values in action is a powerful lever for releasing latent energies and converting them into intensity. There are several different ways in which intensity is generated in a company—in reaction to a crisis, in response to an opportunity, or by a self-imposed challenge to achieve a higher goal. The highest levels of corporate intensity are achieved when a company accepts the greatest challenge of them all—the pursuit of an ideal, the striving toward a high value, and the quest for excellence. The goal may vary from company to company. It may be an ideal like service to society, as at AT&T. It may be a value such as the welfare and well-being of employees, as at Delta. It may be excellence in quality, as at Coca-Cola, or in customer service, as at Marriott. Whatever the goal, the higher it is and the more seriously it is pursued and the more thoroughly it influences the day-to-day activities of the company, the greater is the intensity it generates. A genuine commitment to a higher goal is akin to constantly holding a set of barbells over one’s head. It requires an ongoing, unwavering effort. It demands a tremendous expenditure of energy. It generates a steady, ever present upward tension. Yet with each step forward, the personality grows stronger. Greater energies flow in and are put to work. Corporate intensity is the result. All of the companies we referred to emphatically insist that pursuit of higher values is a key to their success. Public confidence in Johnson & Johnson made possible the dramatic recovery of Tylenol. As Chairman James Burke put it, "We learned that the reputation of the corporation … provided a reservoir of goodwill among the public, the people in the regulatory agencies, and the media, which was of incalculable value in helping to restore the brand." Foster, "Johnson & Johnson Credo," pp. 5–6. Sears’ policy of providing reliable products backed by an ironclad guarantee won the trust of American farmers, many of whom later migrated to the cities and formed a loyal core of customers for the company’s retail store business. Merck’s insistence on factual, objective product presentations and fair balance has earned it the respect of the entire medical community . Du Pont’s obsession with safety for two centuries has saved the company hundreds of millions of dollars, won the loyalty of its employees, and earned it the best reputation in the chemicals industry. And Northwestern Mutual? Well, the point does not require repetition; it is first in everything (except, of course, size). In support of this, we can cite a little informal research relating to one particular corporate value—public service. The research was carried out by Johnson & Johnson in collaboration with The Business Roundtable’s Task Force on Corporate Responsibility and The Ethics Resource Center in Washington, D.C. A list was compiled of those major corporations that had "a codified set of principles stating the philosophy that serving the public was central to their being" and for which there was solid evidence that these ideas had been promulgated and practiced for at least a generation by their organizations. The performance of these companies over the last few decades was then examined. The findings were impressive. On an average, these companies had an annual compound growth rate in profits of 11 percent, which works out to a 23-fold increase in profits over 30 years. This is compared to only a 2.5-fold increase in GNP during the same period and only a 5.3-fold increase in profits for all Fortune 500 companies. Figures taken from data provided by Johnson & Johnson's office of corporate public relations ("Public Service Companies—30 Years of Growth," Johnson & Johnson's Corporate Financial Analysis 14, 1983). The Most Important Person Who determines the guiding values of a company? At the heart of the corporate personality is a deeper psychic center, consisting of the company’s most cherished beliefs, values, and true mission, which give lifelong direction to the activities of the corporation. As in the development of personality in the individual, the process by which the corporate personality acquires a specific set of beliefs and values is influenced by several factors—the personality of its founders, external social conditions at the time of its birth, and geography, as well as experiences and important persons that enter its life later on. When a company is born, it acquires from its founder or founders many of their dominant beliefs, values, attitudes, opinions, and objectives in life, in much the same way as a child inherits its early value system from its parents. Marriott Corporation inherited a tradition of hard work and an insistence on quality from Bill, Sr. Delta inherited the thrifty ways and personal kindness of C. E. Woolman. External factors also influence the values a company acquires. Like many middle-aged people today, both Delta and Marriott Corporation were children of the Great Depression. Geography had a significant impact on all the companies we visited—California informality at Apple and Intel, midwestern hard work at Northwestern Mutual, and southern gentility at Coca-Cola. In addition, the experiences of the company during its formative and later years are influential. Deregulation has profoundly affected the values and objectives of commercial airlines in the United States. Divestiture has imposed new priorities and new demands on AT&T. The succession of CEOs that come after the founder leave a mark on the corporate personality as well, in proportion to the strength of their own character and the length of their stay at the helm of affairs. Rosenwald and Wood at Sears, Woodruff at Coca-Cola, and Palmer at Northwestern Mutual were far more influential than the companies’ founders in shaping corporate values. As a result of all these influences, the company acquires a core of central beliefs, values, attitudes, a mission, and objectives—the psychic center of the corporate personality—that gives direction to all the firm’s activities. The ideas that constitute the psychic center are of several types, and the words used to designate them are frequently interchanged or used as synonyms; therefore, it is better to briefly define the most important of them here. *'Beliefs': Beliefs are ideas or principles that are accepted by an individual or an institution as true and serve as a basis for its actions. Johnson & Johnson believes that service to the public helps a business to prosper. Merck believes that "good ethics makes good sense." IBM believes that "if we respect our people and help them to respect themselves, the company will make the most profit." *'Values': Values are the operational qualities that companies seek to achieve or maintain in their performance. We do not use the word in a strictly moral sense, although ethical values may be included. There are many functional corporate values. Here are some of the most important physical, organizational, and psychological values: *'Mission': A mission is the guiding purpose for which an organization exists. The mission is not a statement of beliefs or values, but rather a statement of broad intention. General Motors Corporation’s mission, as formulated by its founder, William Durant, was to produce "a car for every purse and purpose." Ford Motor Company’s original mission was to build an inexpensive car for the masses. AT&T’s was to provide service to all telephone users throughout the United States under a standardized policy and a single, unified system. *'Objectives': Objectives are the specific goals that a company seeks to fulfill in carrying out its mission in accordance with the beliefs and values it has accepted. Objectives range from broad and general to narrow and specific. IBM has a broad objective "to serve our customers as efficiently and as effectively as we can." One of General Mills’ goals is to achieve double digit total returns to its shareholders. *'Corporate attitudes': Corporate beliefs and values are the ideas that guide the decisions of top management, the choice of its mission and objectives, the formulation of its policies and plans. In addition to these central beliefs and values, an organization, like an individual, possesses a variety of fixed attitudes relating to particular issues. When the psychic center is well developed, these attitudes tend to be in harmony with the central beliefs and values of the organization. The helpful attitude of the Northwestern Mutual agent reflects a mature psychic center. The company’s mission to serve the policy owners has become a personal attitude of the agent. On the other hand, in companies where the psychic center is not yet developed—where beliefs, values, and mission are poorly defined or poorly translated into action—the common corporate attitudes expressed at lower levels of the organization tend to be at variance with or in opposition to the company’s stated convictions. We all know countless instances of companies that proclaim good customer service as a top priority but where the attitudes of customer-service personnel do not seem to reflect that stated goal. The Psychic Center In mature corporations the psychic center becomes organized around a few fundamental beliefs and core values that determine its mission, fix its long-term goals and short-term objectives, and influence a wide range of attitudes expressed at different levels of the company. Thw Figure 1 below depicts the constitution of the mature psychic center. References This article contains excerpts from The Vital Difference: Unleashing the Powers of Sustained Corporate Success by Frederick Harmon and Garry Jacobs, AMACOM, 1985. http://www.mirainternational.com/books/difference/index.htm See Also Value implementation in business http://server3.web-stat.com/4/humanscience.gif | View Stats